UK: Downbeat Bank Looks Ready to Do More

The markets’ interpretation of the November inflation report is that it opens the way to more quantitative easing, perhaps £100 billion or more extra, though the Governor said the case for doing it would be reviewed from month to month.

Uncertainty is the buzzword in this report. Uncertainty about the eurozone – so big in the case of “extreme outcomes” that the Bank can’t attempt to quantify it. Uncertainty too about inflation, though the Bank is more convinced than ever it will fall sharply next year and beyond. Let’s hope this is right – it can’t afford to get it wrong again.

Growth will be about 1% next year, on the assumption that there is some kind of resolution to the euro crisis over the next few months. The fact that Sir Mervyn King can’t envisage what that resolution might be – or at least can’t talk publicly about it – is concerning.

So no growth until the middle of next year, a further rise in unemployment and an economy that is infinitely more subdued than the Bank thought even recently. Not good news. The report is here.